I am president of Ventureneer, a digital media and market research company that helps corporations reach small businesses through thought leadership. My book, Forget the Glass Ceiling: Build Your Business Without One, provides women entrepreneurs practical advice for overcoming the barrier they face. I was named a 2012 and 2013 Small Business Influencer for my articles about the success factors of women entrepreneurs. Follow me on Google and Twitter

Want Venture Capital? Here Are 10 Must-Haves

Think you want to raise venture capital? You’d better be prepared to deliver a pretty big return on investment to VCs. Before you waste your time and that of the VC by asking for a meeting, make sure your business can leap the bar set by VCs.

To attract VCs, your market needs to be at least $1 billion, said Kathleen Utecht, an entrepreneur and investor. She is currently Entrepreneur in Residence at Comcast Ventures where she sources and identifies new investment opportunities and conducts diligence on potential investments. If your market is tens or even hundreds of millions of dollars, think angels.

Are you solving a must-have need? Is your product or service the solution to a major pain point in your industry? Are you innovative and a market disruptor? Do you have the potential of being a $100 million company that captures a significant share of the market? If you say “no” to these questions, you should think twice about asking for venture capital.

Dollars (Photo credit: Tax Credits)

3.) Produce a maximum return on investmentWhen you’re thinking about whether your company should look for venture capital, consider its growth potential. VCs are looking for companies with the potential to grow to $100 million in revenue and beyond. They are not looking to invest in lifestyle businesses that don’t have the potential to grow beyond $10 million in annual sales. “[VCs are] not typically looking to invest in ‘lifestyle’ businesses or businesses that won’t be able to provide some sort of eventual outsized exit at scale, whether that’s an IPO, M&A event, etc.,” said Renee Park, who is an associate at High Peaks Venture Partners, an early stage venture capital fund. Previously she was an associate at 37 Angels, which trains women to be angel investors.

“The return profile VCs aim for depends on the stage of the fund, the size of the fund, and the general investment thesis. Not every exit needs to be ahomerun IPOfor VCs to be happy with the outcome. Sizeable M&A events equal happy investors and entrepreneurs and employees as well,” continued Park.

4.) Need outside money to scaleIf you need money to grow big, venture capital may be for you. Bijoor, LeBlanc, Erica Bell and Katie Finnegan of Hukkster and Paula Long of DataGravity all needed money to scale.

However, “if you can grow quickly and maintain profitability, you may want to rethink giving up equity to an outside investor,” said Utecht. Liz Elting grew TransPerfect, a translation service and discovery service for law firms, healthcare companies, and other businesses in which speed and accuracy are critical, to $350 million without venture capital.

5.) Build product tractionYou have to be well past the idea-on-a-napkin phase. You have to demonstrate some degree of traction for your product or service among customers. Build a Minimum Viable Product. An MVP has just enough features to allow a valid test of the product by early adopters. Early adopters tend to be more forgiving, more likely to give feedback, and able to grasp a product vision from an early version of the product.

6.) Differentiate yourself from your competitionSome would-be entrepreneurs have the hubris to think that they have no competition. Even if you have a disruptive new product, you’re competing against the entrenched way of doing things. Failing to acknowledge the competition and not knowing who your two to three biggest competitors are makes you look silly. VCs also want to know how you will sustain your competitive edge.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.